Enbridge, Enterprise Denied Market Rates on Seaway Pipeline

May 7 (Bloomberg) -- The U.S. Federal Energy Regulatory
Commission denied Enterprise Product Partners LP and Enbridge
Inc.’s request to set rates on the Seaway pipeline connecting an
oil-storage hub in Oklahoma to U.S. Gulf Coast refineries.

The companies had asked federal regulators to grant a
flexible rate known as a market-based tariff for the pipeline
and would’ve allowed them to set and change rates without FERC’s
approval. It would’ve been a first for a crude line.

Demand for the 500-mile (800-kilometer) line has been so
robust the companies said March 27 they’ll more than double the
line’s capacity to 850,000 barrels a day. There’s no major
pipeline connecting the two points, which has caused oil
shipments to accumulate at Cushing, depressing prices for some
grades of crude from the Bakken Shale in North Dakota and
Montana and Canada’s oil sands.

“The burden of proof is on the pipeline to establish that
it lacks significant market power in the relevant origin and
destination,” the commission wrote in an opinion.

The denial may cause more oil to be stored at Cushing, as
shippers seek a lower price on the Seaway line, Hamza Khan, an
analyst with the Schork Group in Villanova, Pennsylvania, said
in an interview.

Bigger Bottlenecks

“That will lead to an increase in the bottleneck at
Cushing because more people are going to be importing oil from
Canada in the hopes of getting it to Seaway,” he said.

Enterprise and Enbridge haven’t decided whether to appeal
FERC’s decision on Seaway, Rick Rainey, a spokesman for Houston-based Enterprise, said in an interview today. The line is still
scheduled to open May 17.

Enbridge, based in Calgary, agreed to buy its half of the
Seaway pipeline from ConocoPhillips in November and announced
the plan to reverse the line to run south the same day. The
first phase of the reversed pipeline is expected to open in late
May, carrying 150,000 barrels a day. The second, 400,000-barrel
phase is scheduled to open in 2013 with an expansion to 850,000
barrels by mid-2014.

FERC has never granted a market-based tariff for a crude
pipeline, Tamara Young-Allen, a spokeswoman for the commission,
said in an interview in March. Normal FERC rates are either
negotiated between the pipeline company and shippers or set by
the commission, and can’t be changed without FERC approval.

The agency rejected a 2007 request by Irving, Texas-based
Exxon Mobil Corp. for a market rate on its Pegasus crude
pipeline carrying oil from Illinois to the Gulf Coast. Exxon won
an appeals court ruling April 17 ordering FERC to reconsider
that decision.

Enterprise fell 1.1 percent to $51.92 at the close in New
York. Enbridge was unchanged at $39.93 in Toronto.